Homework SourseJDD Corporation provides the following benefits to its emplo
JDD Corporation provides the following benefits to its employee, Ahmed (age 26):
Assume the life insurance is a group-term life insurance policy that provides $226,000 of coverage for Ahmed. (Use EXHIBIT 12-10.)
a. Assuming Ahmed is subject to a marginal tax rate of 30 percent, what is his after-tax benefit of receiving each of these benefits (ignoring FICA taxes)? (Enter all amounts as positive values. Round your intermediate computations and final answers to the nearest whole dollar.)
| Salary | $ | 323,000 |
| Health insurance | 12,500 | |
| Dental insurance | 3,900 | |
| Life insurance | 5,400 | |
| Dependent care | 4,400 | |
| Professional dues | 1,380 | |
| Personal use of company jet | 278,000 | |
Solution
SOLUTION
The after-tax benefit of Ahmed’s salary and benefits is $448,199, calculated as follows:
| S.No. | Particulars | Amount ($) | Explanation |
| Taxable Benefits | |||
| 1 | Salary | 323,000 | |
| 2 | Personal use of company jet | 278,000 | |
| 3 | Life Insurance (taxable portion) | 270 | ($150,000 * (0.15 cents per $1,000) *12 |
| 4 | Taxable Total | 601,270 | (1+2+3) |
| 5 | Marginal tax rate | 30% | |
| 6 | Income tax on benefits | 180,380 | (4*5) |
| 7 | After-tax benefit of taxable items | 420,889 | (4-6) |
| Nontaxable Benefits | |||
| 8 | Health Insurance | 12,500 | |
| 9 | Dental Insurance | 3,900 | |
| 10 | Life Insurance (nontaxable portion) | 5,130 | (5,400-270) |
| 11 | Dependent Care | 4,400 | |
| 12 | Professional Dues | 1,380 | |
| 13 | Nontaxable Total | 27,310 | (8+9+10+11+12) |
| After-tax benefit of salary and benefits | 448,199 | (7+13) |
